The Index of Industrial Production is a chain- weight measure of the physical output of the nation’s factories, mines and utilities.
The capacity utilization rate reflects the usage of available resources. Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform.
Industrial production show how much factories, mines and utilities are producing. Since the manufacturing sector accounts for one-quarter of the economy, this report has a big influence on market behaviour. The capacity utilization rate provides an estimate of how much factory capacity is in use. If the utilization rate gets too high (above 85%) it can lead to inflationary bottlenecks in production.
The Federal Reserve watches this report closely and sets interest rate policy on the basis of whether production constraints are threatening to cause inflationary pressures.
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How To Read And Interpret A Weekly Economic Calendar: Industrial Production And Capacity Utilization
Foreign Exchange As A Part Of The World Financial Market
The international currency market Forex is a special kind of the world financial market.
Trader’s purpose on the Forex to get profit as the result of foreign currencies purchase and sale.
The exchange rates of all currencies being in the market turnover are permanently changing under the action of the demand and supply alteration. The latter is a strong subject to the influence of any important for the human
society event in the sphere of economy, politics and nature. Consequently current prices of foreign currencies evaluated for instance in the US dollars fluctuate towards its higher and lower meanings.
Using these fluctuations in accordance with a known principle “buy cheaper – sell higher” traders obtain gains. Forex is different in compare to all other sectors of the world financial system thanks to his heightened sensibility to a large and continuously changing number of factors, accessibility to all individual and corporative traders,
exclusively high trade turnover which creates an ensured liquidity of traded currencies and the round - the clock business hours which enable traders to deal after normal hours or during national holidays in
their country finding markets abroad open.
Just as on any other market the trading on Forex, along with an exclusively high potential profitability,
is essentially risk - bearing one. It is possible to gain a success on it only after a certain training including a
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the factors affecting prices alterations and trading risks levels, sources of the information necessary to account all those
factors, techniques of the analysis and prediction of the market movements as well as with the trading tools and rules. An important role in the process of the preparation for the trading on Forex belongs to the demotrading
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theoretical knowledge and to obtain a required minimum of the trade experience not being subjected to a material damage.
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A look at Economic Developments Around The World
The British economy contracted by 0.6 percent, slightly more than previously thought during the third quarter of 2008,
revised official figures showed, stoking market expectations that the Bank of England may cut interest rates to near zero in the New Year. Meanwhile, British mortgage approvals fell to their lowest level since at least 1997 in November as buyers were deterred by falling house prices and fears that the economic slowdown will hit their budgets, the British Bankers' Association said.
The association, which represents Britain's largest lenders, said banks approved just 17,773 loans for new home purchases in November -- 61 percent fewer than the same month last year, and the lowest number the association has ever recorded since it began keeping monthly records in 1997. It is also 14 percent lower than in October. The FTSE-100 share index closed up 6.82 points at 4,255.98, but Germany's DAX was 9.64 points, or 0.2 percent, lower at 4,629.38. The CAC-40 in France fell 22.95 points, or 0.7 percent, at 3,128.41.
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Bonds fall after $92B in auctions
Government bonds continued a three-day slide Tuesday, after the Treasury Department auctioned off another $28 billion in debt.
Treasury sold 5-year notes in record amounts to investors. Despite a strong showing at the auction, the session was thinly traded with many traders on holiday vacation. This week's light trading put last week's bond rally on hiatus, when yields sunk to record lows.
Tuesday's auction follows Monday's $92 billion in auctions, which included a record $38 billion in 2-year notes and a combined $54 billion in 3-month and 6-month bills.
The $110 billion of auctions in the past two days comes as the government attempts to finance its ever-growing debt. The Treasury last week promised $13.4 billion to the U.S. auto industry, using up the last of the first $350 billion Congress allotted to rescue the financial markets.
Despite a record issuance of government debt, investors continue to stockpile government bonds in their portfolios and corporate balance sheets. With the stock and commodities markets plunging this year, investors have placed their funds in Treasurys with the hope that government bonds will provide a safe investment.
As a result, Treasury bonds have performed very well this year, returning 14.3% to investors, according to a Lehman Brothers index. Investors holding S&P 500-based index funds have lost 41% of their investment so far in 2008.
Bond prices have continued to rise despite ultra-low yields. The 5-year bond yielded just 1.54% in Tuesday's auction, a record low.
Bonds fall: The 10-year note was unchanged at 114-1/32, and its yield held at 2.17% from Monday. Bond prices and yields move in opposite directions.
The 30-year long bond dropped 24/32 to 137-23/32, and yielded 2.65%, up from 2.59%.
The 2-year note fell 16/32 to 99-30/32, and its yield rose to 0.93% from 0.81%.
The 5-year note sank 4/32 to 102-20/32, and yielded 1.46%/
The yield on the 3-month note fell to 0.015% from 0.02%, and has been hovering around 0% for more than a week. Yields near the zero mark on short-term bills are an indication that investors are completely risk-averse, prioritizing safety above profit.
Lending rates remain low: Meanwhile, lending rates between banks remained near record low levels. The overnight Libor rate rose to 0.12% from 0.11% from Monday, and the 3-month Libor rate held steady at 1.47%, according to Bloomberg.com.
Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend money in London, and is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.
Two market gauges showed confidence edging slightly lower.
The "TED spread" rose to 1.46 percentage points from 1.45 percentage points. The TED spread measures the difference between the 3-month Libor and the 3-month Treasury bill, and is a key indicator of risk. The higher the spread, the more unwilling investors are to take risks.
Another indicator, the Libor-OIS spread, rose to 1.25 percentage points from 1.24 percentage points as the Overnight Index Swap rate plummeted to 0.17% from an opening level of 0.32% Tuesday.
The Libor-OIS spread measures how much cash is available for lending between banks, and is used for determining lending rates. The bigger the spread, the less cash is available for lending.
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The USD Lost Steam From Last Week's Strengthening Vs. Most Of The Major Currencies
as investors continued to feed their risk appetite, leading the higher-yielding commodity currencies higher.
The greenback also weakened amid renewed concerns that the Federal Reserve could still have to cut Interest Rates to boost growth. As a result, the USD dropped 0.2% on the day to 1.5513 vs. the EUR having earlier hiked above the 1.54 mark.
Yesterday's speech by Chicago Fed President Evans lowered the growth prospects for the U.S. economy. In his speech he highlighted the growing weakness in household spending, and said that economic growth will probably remain stagnant throughout 2008. U.S. inflation prospects also remain quite gloomy. Economists expect it to fall to within 1.5% to 2%, signaling the slowdown in countries productivity.
Looking ahead to today, we have a batch of very important US data. With many speeches to follow, the most important speech will be delivered by Fed Chairman Bernanke. High volatility is expected during his speech as investors will attempt to decipher Interest Rate clues. Traders will also focus their attention today on Core Retail Sales and the Retail Sales figures. These indices shall give a more accurate picture of consumer spending, which is a major driver of the economy and has a sizable impact on GDP. Traders pay close attention to Retail Sales because it is usually the first significant indicator of the month that relates to consumer behavior and is susceptible to surprises.
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